SEC News Digest

Issue 2008-76
April 18, 2008

ENFORCEMENT PROCEEDINGS

In the Matter of Scott B. Gann

On April 17, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940 (Order) against Scott B. Gann (Gann).

The Division of Enforcement alleges that the United States District Court for the Northern District of Texas entered a judgment on April 4, 2008, against Gann, permanently enjoining him from future violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Securities and Exchange Commission v. Scott B. Gann, et al., Civil Action Number 3:05-CV-0063-L (N.D. Tex.). The court also ordered Gann to pay disgorgement and prejudgment interest of $70,209.35, plus a $50,000 civil penalty for a total of $120,209.35. The complaint in the district court action alleged that Gann engaged in a scheme to defraud hundreds of mutual funds and their shareholders by engaging in deceptive market timing practices on behalf of a single hedge fund client.

A hearing before an administrative law judge will be scheduled to determine whether the allegations in the order are true, to provide the Respondent an opportunity to dispute these allegations, and to determine what remedial action, if any, is appropriate in the public interest. The Order directed the Administrative Law Judge to issue an initial decision within 210 days from the date of service of the Order. (Rels. 34-57674; IA-2725; File No. 3-13009)

In the Matter of Peter A. Perez

On April 17, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings, and Imposing Remedial Sanctions (Order), against Peter A. Perez (Perez). The Order finds that, on March 19, 2008, a final judgment was entered by consent against Perez, permanently enjoining him from future violations of Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, in the civil action entitled SEC v. The Children's Internet, Inc., et al., Civil Action Number C 06 6003 (CW) in the United States District Court for the Northern District of California. The Commission's complaint alleged that Perez solicited investors for The Children's Internet while failing to disclose his commission arrangement and failing to be registered with the Commission as a broker. The complaint also alleged that Respondent sold unregistered securities and otherwise engaged in a variety of conduct which operated as a fraud and deceit on investors.

Based on the above, the Order bars Perez from association with any broker or dealer. Perez consented to the issuance of the Order without admitting or denying any of the findings in the Order except as to the jurisdiction of the Commission over him and over the matters set forth in the Order, and the entry of the judgment against him, which are admitted. (Rel. 34-57676; File No. 3-13010)

In the Matter of Gary L. Lancaster

On April 17, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934 and Section 203(f) of the Investment Advisers Act of 1940, Making Findings and Imposing Remedial Sanctions (Order) against Gary L. Lancaster. The Order finds that on March 27, 2008, a final judgment was entered by consent against Lancaster, permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 in the civil action entitled SEC v. Gary L. McDuff, et al., Civil Action Number 3-08-CV-526, in the United States District Court for the District of Texas.

Based on the above, the Order bars Lancaster from association with any broker, dealer, or investment adviser. Lancaster consented to the issuance of the Order without admitting or denying any of the findings in the Order; however, he admitted the entry of the injunction against him. (Rels. 34-57677; IA-2726; File No. 3-13011)

In the Matter of Robert T. Reese

On April 17, the Commission issued an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, Making Findings and Imposing Remedial Sanctions (Order) against Robert T. Reese. The Order finds that on March 27, 2008, a final judgment was entered by consent against Reese, permanently enjoining him from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933, Sections 10(b) and 15(a) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 206(1) and 206(2) of the Investment Advisers Act of 1940 in the civil action entitled SEC v. Gary L. McDuff, et al., Civil Action Number 3-08-CV-526, in the United States District Court for the District of Texas.

Based on the above, the Order bars Reese from association with any broker or dealer. Reese consented to the issuance of the Order without admitting or denying any of the findings in the Order; however, he admitted the entry of the injunction against him. (Rel. 34-57678; File No. 3-13012)

SEC Files Enforcement Action Against Southwestern Medical Solutions, Inc. and Others in Connection with the Publication of False and Misleading Press Releases

On April 16, the Commission filed a civil injunctive action against Southwestern Medical Solutions, Inc. (Southwestern), a company that purportedly develops and manufactures diagnostic testing devices for the detection of infectious diseases, John R. Hedges, its president and chief executive officer, Richard R. Powell, its vice president, and Basil J. Meecham, a director, alleging violations of the antifraud provisions of the federal securities laws in connection with the publication of false and misleading press releases.

According to the Commission's complaint, from at least January until late August 2006, Southwestern issued several false and misleading press releases claiming that: the Food and Drug Administration (FDA) had approved its Labguard diagnostic testing device; it had received an order for several thousand units of the Labguard device; and it had pending patents and trademarks with the U.S. Patent and Trademark Office. The complaint also alleges that Southwestern submitted false and misleading information about its business to the Pink Sheets, an inter-dealer electronic quotation and trading system in the over-the-counter securities market. The complaint further alleges Hedges, Powell, and Meecham were responsible in various capacities for preparing and disseminating the false press releases and false information provided to the Pink Sheets.

Final Judgment Entered Against Former San Francisco-Area Stockbroker Concerning Fraudulent Scheme that Violated the Privacy Rights of His Elderly Customers

The Commission announced that the U.S. District Court for the Northern District of California entered a final judgment against Sidney Mondschein, a defendant in a civil injunctive action brought by the Commission. The Commission's complaint charged that Mondschein reaped illegal profits by secretly selling the names and other confidential personal information of over 500 of his customers to six different insurance agents. The final judgment, entered on April 14, 2008, permanently enjoins Mondschein from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting any violations of Rules 4(a), 5(a), and 10(a)(1) of Regulation S-P. The final judgment also orders Mondschein to disgorge all of his ill-gotten gains of approximately $53,000, plus prejudgment interest of approximately $4,680, and to pay a penalty of $45,000. In a separate related action, the SEC issued an Order barring Mondschein from associating with any broker or dealer, with a right to reapply after five years.

Mondschein consented to the issuance of the final judgment without admitting or denying the allegations in the Commission's complaint, and consented to the Commission's Order without admitting or denying its findings. [SEC v. Sidney Mondschein and UNCI, Inc., Civil Action No. C-07-6178 SI (N.D. Cal)] (LR-20531)

INVESTMENT COMPANY ACT RELEASES

U.S. Bank National Association, et al.

A notice has been issued giving interested persons until May 12, 2008, to request a hearing on an application filed by U.S. Bank National Association (Bank), et al. for an order exempting applicants from Sections 12(d)(1), 17(a) and 17(e) of the Investment Company Act and permitting certain joint transactions under Section 17(d) of the Act and Rule 17d-1 under the Act. The order would permit (i) certain registered management investment companies that participate as lenders in a securities lending program to pay, and a lending agent to accept, fees based on a share of revenue generated from securities lending transactions under the program; (ii) the Bank and any entity controlled or under common control with the Bank to engage in principal transactions with, and receive fees or commissions for acting as broker or agent in connection with the purchase or sale of securities for, the registered management investment companies, irrespective of any affiliation that may arise solely because of an investment by the investment companies of cash collateral in shares of another registered management investment company; and (iii) certain registered management investment companies and entities relying on Section 3(c)(1) or 3(c)(7) that may participate as lenders in the program to invest cash collateral in certain registered short term bond funds. (Rel. IC-28238 - April 16)

SELF-REGULATORY ORGANIZATIONS

Approval of Proposed Rule Change

The Commission approved a proposed rule change (SR-ISE-2008-15) filed by the International Securities Exchange relating to limitation of the ISE's liability. Publication is expected in the Federal Register during the week of April 21. (Rel. 34-57675)